#10 Child portfolio: Investing for and with children
Why investing in securities is the best choice and how children's portfolios promote the financial education of young generations.
Why investing in securities is the best choice for children
The first consideration was to offer child portfolios that not only function as a pure account solution, but also offer the opportunity to invest in securities. The reason for this is simple: children have a long investment horizon. It takes 18 years for a child to reach the age of majority. With such a long time horizon, it makes sense to invest in securities instead of relying solely on low-interest accounts. The interest rates on conventional bank accounts are often below the rate of inflation. Investing in securities is therefore essential to maintain the purchasing power of money.
A simple example illustrates the difference: if CHF 100 is invested monthly for a child for 20 years and an average return of 5 percent per year is achieved, this results in a portfolio of CHF 41'000. In comparison, an interest rate of 1.5 percent would only generate 28'000 francs.
The account in the child's name
Another key difference with our child portfolios is that the account is in the child's name and not in the name of a parent. This has the advantage that it is a so-called tied child asset. All payments into the account belong to the child, even if the parents have control over the portfolio. This is particularly important if several people pay in, such as grandparents, godparents or parents. The money belongs exclusively to the child and cannot simply be taken away. Another advantage of this approach is that no time-consuming transfer of securities is required when the child reaches the age of majority. This saves time and money.
Promoting the financial literacy of the next generation
Promoting the financial education of children was another key consideration when designing the child portfolio. Children are given the opportunity to have their own login as soon as they are old enough. They can use this login to view the portfolio, track performance, trace deposits and monitor the investment strategy. The option to customize the investment strategy is an important step towards financial education. When teenagers are able to make their own investment decisions, they learn the value of investments and the impact on their wealth. But again, parents naturally have the final say until they reach the age of majority.
Conversations about financial literacy and young people
The topic of financial literacy among young people is extremely relevant and interesting. In discussions with economist Michael Kendzia and financial advisor Aysha van der Paer, we were able to gain valuable insights.
Do you have any questions or suggestions of your own? Please leave a comment or write to Felix Niederer.